Author Archives: Nick

As a result of the current economic climate, businesses have begun to expand their search for new business globally, and more and more business is conducted across borders in the Twenty-First Century than in previous eras.

Essentially a “Click wrap” agreement refers to an agreement that appears on a computer screen and requires a user to merely click “yes or I agree” to assent to the “terms and conditions” of the transaction before viewing the website, installing software or purchasing a product from the website, and leaves no room for negotiation of those “terms and conditions”.

Similarly, Shrink-wrap agreements are licence terms that are contained on or inside a software box and again, negotiation, or even discussion, of the terms contained therein is not an option. The terms thereof are in most instances drafted long before the ship even leaves the harbour for dispatch, and as any good practitioner would, in favour of their client being the licence holder/seller of the product.

The Convention of 30 June 2005 on Choice of Court Agreements (“the Convention”) is an international treaty concluded within The Hague Conference on Private International Law, which came into force on 1 October 2015.

The Convention applies only to cases that:

• are international;
• involve an exclusive choice of court agreement; and
• are concluded in a civil or commercial matter.

The intended simplicity of the Convention as highlighted in the bullet points above, when dealing with Convention on a practical level has resulted in the application of the Convention being a little more complex than simplistic, as the scope of the Convention, if interpreted holistically, would include the exclusive choice of court agreements in non-negotiated agreements, such as online “Click wrap” and “Shrink-wrap” agreements.

These types of agreements are of particular concern in light of the increased prevalence of non-negotiated agreements being concluded online, especially in the Twenty-First century where e-commerce makes it much easier to enter into binding, and often commercially complex cross border transactions, by a simple click of a button, without fully understanding the terms thereof, especially when it comes to exclusive choice of court agreements/clauses.

The consequence of this is that parties that may have been unlikely to enter into such transactions prior to the availability of the internet, now regularly contract with parties located in other countries, and will be subject to the seller’s choice of forum in the event of litigation.

Thus, a valid choice of court provision, nominating a court which would normally be inaccessible to a weaker party is likely to represent an effective barrier with regard to legal action ever being brought against the stronger party, especially in instances where the selected court is out of reach of the weaker party due to inter alia, the costs associated with launching legal proceedings across its borders.

Service providers and telecommunications companies are opposed to the Convention in its current form as the likelihood of them being forced to defend themselves in a foreign jurisdiction, or being subject to a default judgment in the event that the action is undefended is high considering the parties with whom they contract with on a daily basis.

A further concern when dealing with these types of non-negotiated agreements is that “consumers” of the service or product will be considered “businesses” due to the definition of “consumer” under the Convention being very narrowly worded. Accordingly, stronger and bigger companies when contracting with “consumers” by way of Click-wrap and Shrink-wrap agreements can exploit the narrow wording, and can essentially forum shop and choose a State with laws which may work in their favour as the exclusive forum.

The problem as highlighted earlier lies in the wording of the scope of the Convention. The Convention does not adequately take account of the fact that many agreements falling within its scope involve parties with very imbalanced bargaining powers.

Whilst it is true that the Convention does exclude business-to-consumer (“B2C”) agreements, as well as consumer-to-consumer (“C2C”) agreements, it is nevertheless undesirable, and indeed inaccurate, to describe the Convention as purely a Business-to-Business (B2B) Convention.

The Convention does not only deal with B2B contracts; but rather with an array of parties such as non-profit organisations, as well as other parties that are not strictly businesses, but do not fit within the Convention’s narrow definition of “consumer”. Furthermore, the term “business-to-business” suggests an equal relationship; however, this is not always the case.

There has been much debate regarding the way in which the scope of the Convention can be curtailed so as to ensure that non-negotiated agreements such as Click-wrap and Shrink-wrap agreements are excluded from the Convention, so as to even up the playing field.

One school of thought suggests the possibility of expanding the current definition of “consumer” to include the typical transactions entered into by non-profit organisations and small to medium-sized enterprises.

Another school of thought suggests adopting a definition of consumer similar to that expressed in section 4B of the Australian Trade Practices Act 1974 (“Cth”), which provision draws a distinction between a business engaged in a transaction for consumption, and situations where a business is engaged in its primary area of trade.

The above two suggestions are two of many, and the wording of the Convention allows for a plethora of interpretation so as to curtail the issue of how “consumer” should be interpreted, however, the two suggestions listed above are perhaps the most practical and efficient of all the suggestion listed by various commentators and authorities on the Convention.

The Convention can only be criticised for what it does as opposed to what it does not do, and new thinking in this regard opens several possibilities, for example, one could consider international harmony and commercial practicality above any jurisdictional bases.

From a jurisdictional point of view, the use of exclusive choice of court agreements to oust a court’s jurisdiction that otherwise would have had jurisdiction in a particular matter is becoming the norm, especially in e-Commerce transactions. Contracting parties are looking for the most suitable forum within which to litigate, the reasons being cost, convenience and the neutrality that international forums can offer.

All this being said and done, it is now the job of the courts to resolve disputes arising from these transactions. The Convention hopes to tackle this head on, and on a much grander scale than anything that has come before it.

In closing, I am of the view that the Convention is a large, and necessary, step forward. Whilst at present South Africa is not a signatory to the Convention, many of South Africa’s trading partners are, and in light thereof, legal practitioners practising in the international arena ought to nevertheless advise their clients with the Convention in mind, especially when encountering exclusive choice of court clauses in any agreement, and not only under the guise of “non-negotiated” agreements, so that clients can Shrink-wrap or Click-wrap their agreements confidently.

Marcel Weygertze – Practitioner
marcel@rademeyer.co.za

Kim Rademeyer – Partner
kim@rademeyer.co.za

Anybody who has been through a contentious divorce, which category most divorces fall under, knows how many different tactics can be used by an aggrieved ex-partner to manipulate the outcome of the legal conflict in their own favour.

Some of these means are not exactly above board and some are plainly against good morals. One of these less than lawful methods is the exploitation of the special legal personality attached to trusts.

The biggest battles in most divorces concern two issues: money and children. Oftentimes neither spouse wants to give even an inch of leeway to the other due to anguished feelings and injured pride. What this leads to is all manner of unscrupulous contrivances.

With the recent judgement of the Supreme Court of Appeal in REM v VM 2017 (3) SA 371 (SCA) (“the REM case”), there has been a huge fight back against the use of trusts in the field of family law in general and divorce in particular.

Background

Starting way back in 2006, with the case of Badenhorst v Badenhorst 2006 (2) SA 255 (SCA), the Supreme Court of Appeal provided some relief when it came to the issue of shielding assets using a trust’s separate legal personality. In this case it was decided that the value of assets in the trust could be taken into account when it came to considering a redistribution order, which applies to marriages entered into before 1 November 1984, being the date that the Matrimonial Property Act came into force.

The reason for the provision relating to redistribution orders is to curb the unfair results of marriages out of community of property before the accrual system came into effect. Simply put, before 1984 partners wishing to get married out of community of property did not have the option of the accrual system, hence the need for redistribution orders so as not to prejudice those spouses because they never had the option of an accrual.

In the Badenhorst case, the court held as it did because the terms of the trust deed and the evidence as to how the trust was being conducted during the marriage were indicative of the fact that the trust founder spouse maintained actual control of the trust, but wished to make use of the trust as if it weren’t simply just a pool for his money.

The reasoning behind this decision was that the founding spouse had not respected the difference between trust assets and his own assets, resulting in a blur in the distinction between which assets belonged to him and which assets were controlled by the trust.

Thus, the values of the assets of the trust were taken into account in determining the extent of the redistribution order in the case in question. This amounted to a “piercing” of the trust’s veil, which is usually respected. This “piercing” closely resembles what is referred to in commercial law as “piercing the corporate veil.” Piercing the corporate veil occurs in order to get past the separate legal identity of a business so as to hold a natural person personally liable for certain consequences due to an abuse of the separate legal identity of said business.

The REM Case

In the REM case, the Supreme Court of Appeal had to answer the question whether the assets of certain trusts legitimately formed part of the assets of the trusts and not part of the appellant’s estate and, therefore, not falling under the accrual system. The court, therefore, had to determine whether the trusts in question were simply “alter egos” of the appellant. While the court did not find the trusts to be merely “alter egos” of the appellant, there are very important consequences that come about because of the decision.

The court acknowledged an “equitable remedy” in the form of piercing the veil of an “alter ego” trust which is approached flexibly in order to redress an abuse of the trust form in certain circumstances. The court stated that this remedy will generally find application where the trust has been used for dishonest purposes or in an unconscionable manner in order to evade liabilities or avoid obligations that the founder would otherwise have.

The most important aspect of this decision was the opinion of the court that the main consideration in cases of trusts and the patrimonial consequences of divorce is whether the trust-creating spouse had attempted to prejudice a monetary claim of the other spouse by administering the trust in a manner that is an abuse of the trust form.

The court held that this would occur, in the accrual system, where the trust-creating spouse had set up the trust, transferred assets to it and dealt with them as if they were trust assets in a fraudulent or dishonest attempt to hide them and prejudice his/her spouse’s accrual claim. In such situations, so the court held, the assets of the trust in question would be used to quantify the accrual claim of the aggrieved spouse and to satisfy any payment owed under the accrual regime to the other spouse.

Conclusion

The assets of an alter ego trust can now be taken into account in order to calculate the accrual claim of a prejudiced spouse, providing more protection to less financially-stable divorcees who are prejudiced by the concealment of assets by unscrupulous ex-spouses.

Kim Rademeyer – Partner
kim@rademeyer.co.za

Mark Twain said: “Giving up smoking is easy … I’ve done it hundreds of times…”. Smokers and non-smokers know that smoking is extremely addictive. However, does the electronic cigarette (“e-cigarette”) curtail the negative effects that cigarettes have on the body of a smoker and the people around them?

The differences between cigarettes and e-cigarettes include the following:

• Cigarettes contain tar while e-cigarettes do not.
• Cigarettes make use of a process of ignition which converts solid nicotine or other chemical smoking products into smoke. An e-cigarette provides combustion to convert liquid nicotine into water vapors.
• Cigarettes release a continuous stream or cloud of smoke which is harmful to the smoker, people around the smoker, and the environment. e-cigarettes only release smoke when exhaled by the smoker.
• Generally e-cigarettes are perceived to be up to 75% cheaper than cigarettes.
• The use of cigarettes is limited in some ways whereas the use of e-cigarettes is not.

The World Health Organization (“WHO”) states that tobacco, which is contained in all regular cigarettes, causes the death of approximately 6 million people each year. Just under one fifth relates to death of non-smokers due to the exposure to second-hand smoke. There are no positive factors that can be identified with smoking regular cigarettes, there are many negatives, including decay in teeth and organs, illnesses, and possibly death.

The e-cigarette industry is a three-billion-dollar industry with approximately 466 brands on the market worldwide. The smoking of an e-cigarette causes the heating of a liquid, which consists of nicotine, tobacco-specific nitrosamines, tobacco alkaloids, aldehydes, propylene glycol and/or glycerine, metals, volatile organic compounds and flavouring agents.

The earliest e-cigarette can be traced back to Herbert A. Gilbert who patented “a smokeless non-tobacco cigarette” that involved “replacing burning tobacco and paper with heated, moist, flavoured air” in 1963. The patent was granted in 1965 for a device which produced flavoured steam without nicotine.

e-cigarettes have an inflammatory effect on the epithelial cells lining the inside of the lungs. The substances in e-cigarettes cause harm to these cells and make them susceptible to infections. The carcinogen formaldehyde contained in e-cigarettes can be up to 15 times more toxic and cancer-causing when consumed with high-voltage vapour releasing e-cigarettes.

The smoking of tobacco products, such as cigarettes, is prohibited in any public area. The smoking of e-cigarettes, however is not. There seems to be a loophole in the legislation and policies pertaining to e-cigarettes. It is arguable, but one may be of the opinion that e-cigarettes should not be excluded from legislation detailing tobacco products, as it undermines the intention of the legislature. Some individuals use e-cigarettes as a way of quitting smoking. Studies have however shown that smokers could not be cured of tobacco cravings after 6 to 12 months on e-cigarettes and were still smoking regular cigarettes. The result is therefore the creation of dual-smokers. e-cigarettes have also opened a door to minors as they too can purchase and smoke e-cigarettes as opposed to regular cigarettes due to the loophole in legislation and policies.=

There are many opposing views on e-cigarettes and the manner in which legislation and policies should cater for it. Health advocates in the US are fighting to include e-cigarettes in all “clean air and tax laws” as a tobacco product or a product derived from tobacco. Switzerland, Brazil and Singapore have banned indoor smoking altogether. Canada and France have regulated their use. On the contrary, the British welcomed the use of e-cigarettes in 2015 as a healthier and safer alternative to regular tobacco cigarettes.

In South Africa, the Medicines and Substances Related Act 101 of 1965 was amended in 2012 to state that e-cigarettes are scheduled devices that should be bought only from a pharmacy with a doctor’s prescription. e-cigarette distributors bypassed this requirement by selling e-cigarettes over the counter in shopping malls by not mentioning that e-cigarettes can be a therapeutic device, have health benefits, or help with smoking cessation. An example hereof is Twisp, the popular brand seen in many South African shopping malls. Twisp promotes their product to be available in different flavours to “tantalize all your senses”. This may be suggestive of enjoyment. Further, South Africa’s Tobacco Products Control Act 83 of 1993 does not include any specific reference to e-cigarettes.

The ongoing health debate on conventional tobacco cigarettes compared to e-cigarettes may only be resolved after a detailed study on the long-term effects of e-cigarettes has been undertaken. In the interim, e-cigarettes bear their own characteristics that are detrimental to one’s health. It is suggested that e-cigarettes should be included under “tobacco products” for legislative purposes and that the smoking of e-cigarettes be included under the regular definition of “smoking”. Irrespective of the difference in opinion and views, it is a fact that the use of e-cigarettes remains inadequately regulated and this requires legislative reform.

South Africa’s Minister of Health, Aaron Motsoaledi, has taken a firm standing against e-cigarettes and has indicated that he will push for new legislation against all forms of smoking e-cigarettes. Until then, where there’s smoke there’s fire.

Nicolé Maré – Candidate Practitioner
nicolè@mrf.co.za

Kim Rademeyer – Partner
kim@rademeyer.co.za

The Recognition of Customary Marriages Act, 120 of 1998 (“RCMA”) came into operation on 15 November 2000 with the following intentions, among others:

• To make provision for the recognition of customary marriages;
• To specify the requirements for a valid customary marriage;
• To regulate the registration of customary marriages;
• To regulate the proprietary consequences of customary marriages and the capacity of spouses of such marriages; and
• To regulate the dissolution of customary marriages.

The intention of the Legislature to recognise customary marriages under our country’s (then) new constitutional dispensation was no doubt a noble one. However, after several years of implementation and multiple Constitutional Court challenges, it appears as though the Legislature may have been overly ambitious.

South Africa has 11 official languages (9 of which are African) in order to accommodate the vast diversity of people and cultures in our country. Yet, when it came to recognising customary marriages the Legislature attempted to draft a “one size fits all” act. The result of which was a contradictory, unrealistic piece of legislation, namely the RCMA.

The inherent nature of almost every culture in the world is that of a patriarchal system. The RCMA attempts to address the issue through the provision of section 6 which provides for the abolition of marital power by granting all spouses equal powers to control and manage marital property (subject to the marital property regime governing the marriage).

However, this becomes a complicated section to implement in practice when dealing with polygamous customary marriages. One interpretation is that the status and rank of multiple wives is ignored/rejected entirely and all wives have equal status in relation to one another and their husband; alternatively, due to the fact that the wording of the section refers to the “basis of equality with her husband”, that the status and rank of each wife remains.

Further, the very next section, 7(1), is in direct contradiction in that it provides that –

“The proprietary consequences of a customary marriage entered into before the commencement of this Act continue to be governed by customary law”

which, in most cases, means that the husband will be deemed to be the head of the household with full power and control over marital property, stripping pre-RCMA customary law wives of the equality granted by the immediately preceding section 6.

The Constitutional Court in the case of Gumede v President of the Republic of South Africa and Others 2009 (3) SA 152 (CC) attempted to address this conflict when it held that section 7(1) of the RCMA is unconstitutional due to its discriminatory nature and that all monogamous customary marriages are deemed to be marriages in community of property (in the absence of an antenuptial contract). However, this still left pre-RCMA polygamous marriages at odds with the Constitution.

In the recent case of Ramuhovhi and Another v the President of the Republic of South Africa and Others 2016 (6) SA 210 (LT) the High Court in Limpopo took a definitive step towards rectifying the conflict in the RCMA by finding that section 7(1) is discriminatory on the grounds of race, ethnicity and social origin and therefore unconstitutional. The court also held that section 7(1) creates an unjust differentiation between wives in monogamous and polygamous customary marriages.

The court therefore ordered that wives in pre-RCMA polygamous customary marriages should each enjoy equal marital property rights with their husband in respect of the marital property owned by them and their husband respectively.

However, the recognition of polygamous marriages in itself may give rise to a future Constitutional Court challenge on the ground of gender discrimination as only men are allowed to have multiple wives, while women may only have one husband.

The battle between custom and the Constitution continues.

Ashton Pollard – Practitioner
ashton@rademeyer.co.za

Kim Rademeyer – Partner
kim@rademeyer.co.za

A trade secret may be the “X-factor” that distinguishes one business from another. It may provide a business with a competitive edge and advantage, and create a niche market which competitors may find challenging to enter. A trade secret may be any form of information which is valuable to a business and which is not known nor readily ascertainable by third parties. There are pros and cons to keeping information as a trade secret or to treating a trade secret as an invention and seeking patent protection for the invention.

The Coca-Cola recipe has been a secret for many decades and is currently kept in a vault within the company’s headquarters in Atlanta. There have been rumours that the recipe is known by only two employees – each knowing only half of the recipe, and that only two people know the combination to the safe in which the recipe is stored. In 2006, an employee and two friends stole the recipe and attempted to sell it to Pepsi. Pepsi did not accept the recipe and blew the whistle on the happenings. The perpetrators were arrested.

Another example of a trade secret is the ingredients for Kentucky Fried Chicken (KFC). Colonel Sanders initially kept the secret to himself but eventually wrote it down. The recipe is kept in a safe in Kentucky. In order to keep the ingredients a secret, two separate companies blend a portion of the herb and spice mixture which is subsequently sent to outlets as a blended spice mixture.

The Google search algorithm remains a trade secret as Google continuously refines the algorithm. Google is the top search engine used today, a term which is known and used by everyone.

One should consider the pros and cons to keeping information a trade secret. The pros of a trade secret are that it is free; no registration is required; there is no lifespan or time limit connected to the secret; it is in place on establishment as it does not have to be disclosed for any reason; and there are no maintenance fees. The cons of a trade secret include the risk of the secret being reverse engineered or exposed. Should the trade secret be treated as an invention and a third party registers a patent for the invention, the patent would prevent the original “trade secret holder” from making use of the invention. A trade secret cannot preclude third parties from doing something. One may then consider what a patent has to offer.

A granted patent provides a patentee with enforceable rights in terms of the South African Patents Act. The patentee has the right to exclude others from making, using, exercising, disposing or offering to dispose of, or importing the invention, so that the patentee will have and enjoy the whole profit and advantage accruing by reason of the invention. Patents are territorial and will only be enforceable in counties in which the patent is filed and granted. A patent has a lifespan, commonly 20 years in most countries, and is required to be maintained by annually paying renewal fees.

Should a business wish to protect a trade secret, it is essential to protect the secret by restricting access to the relevant information and to having individuals who have knowledge of the information enter into a confidentiality undertaking. Just as KFC’s employees who are bound by confidentiality agreements, it is necessary to have employees enter an undertaking such as a non-disclosure agreement or to include such clauses in an employment contract or document.

Recently a Pennsylvania federal judge ordered an ex parte temporary restraining order against a former global marketing director for Pfizer. The temporary restraining order was granted upon Pfizer’s emergency complaint against the former director for misappropriating confidential information and trade secrets. Pfizer sued the former director shortly after her resignation as she allegedly forwarded emails to her personal account and compiled a USB drive containing documents detailing strategic plans and product launch roadmaps prior to resigning. The hearing was scheduled to take place on 16 March 2017.

In today’s modern word, the speed and efficiency of technology are progressing and the protection of trade secrets may be a difficult task. It is important for a business to identify and protect trade secrets by way of policies and agreements. It is recommended to restrict disclosure, prevent unauthorised access to information or premises, keep confidential information confidential, and mark documents as “secret” or “confidential”.

The decision of keeping certain information a trade secret is entirely at the discretion of the decision maker. Should information be kept a trade secret, it is essential to implement measures such as non-disclosure agreements and restrictive access in order to keep the valuable information secret. “Information is power. But like all power, there are those who want to keep it for themselves” – Aaron Swartz.

Nicolé Maré – Candidate Practitioner
nicole@mrf.co.za

Monty Rademeyer – Partner
monty@mrf.co.za

Want to know more about the author? Read her Me in a Minute blog post.